Price Elasticity and Supply & Demand
Xeco – 212
Peter D. Brothers
Fill in the matrix below and describe how changes in price or quantity of the goods and services affect either supply or demand and the equilibrium price. Use the graphs from your book and the Tomlinson video tutorials as a tool to help you answer questions about the changes in price and quantity
Event| Market affected by event| Shift in supply, demand, or both. Explain your answer.| Change in equilibrium| Frozen orange crops in California| Orange juice| Supply (left)—Not as many available oranges to offer consumers.| Price will increase and quantity will decrease. | Hurricanes in the Gulf Coast| Oil| Shift in supply because quantity is limited. Demand will remain the same.| The price of oil will increase because of the decrease in quantity.| Cost of cotton decreases| Clothing| Increase in both demand and supply due to the decreased price of cotton| Price will decrease when supply increases| Technology improves efficiency in pasta manufacturing| Grocery stores and restaurants| Increase in supply and demand because manufacturing faster increases supply which decreases price causing an increase in demand.| Price will decrease as a result of the increase in supply.| *
1. What do substitutes refer to in economics? Give an example of two substitutes.
A substitute in economics refers to alternate good or service for a specific good or service. One example of a substitute is margarine over butter, and another example is a bicycle over an automobile.
2. Define “Price Elasticity of Demand.” Give an example. Price Elasticity of Demand is a measure used to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. An example would be the change or elasticity in demand for coffee if you were to increase or decrease its price.